Kevin Heisler

Monitoring performance is the lifeblood of any business. A business cannot adjust or make improvements without having a solid communication process and objectively reviewing performance. An ecommerce business is no different, and in some respects, it may be even more difficult to monitor because of the bevy of information available to evaluate performance. This challenge is especially true for new ecommerce stores as the business leaders may be unfamiliar with the core metrics to be focused on for their business.

Below is a discussion of five of the most important metrics for an ecommerce business to track and monitor. While these metrics can apply to any ecommerce business, additional insights and examples are provided below related to how manufacturers can utilize five crucial performance metrics.

1—Website Traffic

As the measure of the volume of users to your site, website traffic is the foundational metric of any ecommerce site. You cannot have web sales without site visitors. Traffic leads to both purchases and general brand awareness.

Traffic can be measured by looking at the website as a whole and at particular pages or portions of a website. Traffic metrics can also measure users from different sources (e.g., organic, paid, e-mail, social, etc.) or device types (e.g., desktop, tablet, mobile, etc.). All this information can be useful in determining the habits of customers and potential customers.

Manufacturer Application:

Manufacturers are the best source of lots of information, and they can use that information to increase traffic to their e-store. As the original source of product information, manuals, warranty information, etc., manufacturers can use that information to their advantage to garner attention and traffic to their ecommerce store. The manufacturer can further entrench themselves with their customers and prospective customers if they provide this information in a user-friendly manner.

2—Conversion Rate

Conversion rate is the percentage of users who take a particular action on your site.  For an ecommerce store, a purchase is obviously the primary action that should be measured. Monitoring conversion rates can tell a lot about your business. You will want to investigate the reasons for dips and spikes to better manage the site content going forward.

Manufacturer Application:

A manufacturer may determine that other conversion rates are important for their business. For example, an original equipment manufacturer who relies on customer loyalty to sell OEM parts for the lifetime of their equipment might also focus on a conversion rate for product manuals downloaded. The manufacturer knows if a customer is downloading a product manual that they are likely using that to guide them as they purchase replacement parts.

3—Average Order Value

Average order value (AOV) is the average dollar amount that a customer spends during a single transaction. Monitoring this value and the trend can help decision-making. While a strong AOV differs from business to business, analyzing trends in this amount can be a very powerful metric.

Manufacturer Application:

Manufacturers can use information gained through monitoring AOV in a variety of ways. A stagnant average order value can indicate that customers are not purchasing outside of their usual pattern and can indicate the need to adjust selling tactics. For example, a manufacturer that services its original equipment can offer product suggestions of routine maintenance items that customers might be inclined to add to their order. Product suggestions improve user experience as it adds an element of convenience to their shopping experience and adds high-margin sales for the e-store.

4—Shopping cart abandonment

Shopping cart abandonment measures the percentage of customers who start the checkout process but do not complete it. It is a subset of the overall conversion rate that looks much closer at customers that nearly completed the buying process.  Shoppers who abandon a purchase is a significant issue for a business as the user is likely a serious buyer who decided not to purchase because of a roadblock that occurred during the checkout process. This is often due to an overly complicated checkout process or something that surprises the buyer and prevents finalizing the sale.

Improving the cart abandonment rate can have a significant impact on the business because a lower abandonment percentage directly results in increased sales. Investigating the reasons for abandonment can lead to actions to increase revenue and profitability.

Manufacturer Application:

A major reason that buyers abandon their cart in the business-to-business setting is the availability of certain payment options. Many customers of manufacturers are accustomed to buying on payment terms, or, more likely, their business process may require it. Ideally, your e-Store will offer multiple, easy-to-use payment options. Allowing customers to pay on terms is an extremely important option to include. This will allow for an efficient shopping experience without the inconvenience of a change in their payment process.

5—Customer Lifetime Value

Customer lifetime value is an estimate of the total profitability from a customer over the customer’s lifecycle. This is an important measure but can be complicated to estimate. The calculation looks at how profitable a customer is, subtracts acquisition costs, and then estimates how long the business will be able to retain the customer.

While the larger the customer value, the better, any potential customer that brings a positive value is generally good for the business and accretive to the overall bottom line. Although hard to estimate, this metric will be easier to gauge over time and is very helpful in determining the value of new customer acquisition. Additionally, this metric forces a business to consider retaining customers and highlights the need for steps to increase customer loyalty.

Manufacturer Application:

Direct-to-consumer businesses have known since the infancy of ecommerce how important customer loyalty and customer lifetime value is for profitable growth.  Just imagine how much customer loyalty means to a manufacturer of products with very large price tags! Losing a customer can be detrimental to the business, and this metric helps continually gauge activities to increase customer value through loyalty and customer retention.

Metrics:  Communicate, Monitor and Act

A business should consider these and other metrics and determine which are the most important for the business leaders to focus on. These metrics become key performance indicators (KPIs) for the business. The KPIs should be part of a dashboard that reports regularly (some even daily) and should result in actions for business leaders to take.

Rules of thumb exist on how to read these metrics. The issue is that they significantly change depending on your industry or business. The best way is to measure how your business is trending and performing over time. These metrics help develop an environment of continuous improvement to best deliver a growing and profitable ecommerce store.

Kevin Heisler is the chief financial officer of GenAlpha Technologies, a provider of ecommerce, e-catalog and customer portal solutions for manufacturers, distributors and dealers. Kevin can be reached at [email protected] or contacted via LinkedIn.